Know-How Exchange : Career/Training

Hi Angela

With your qualifications, I would think that you have enough maths training to see that the Amway type of scheme is pyramidal in nature if not strictly by definition a “Pyramid Sales Operation”. In many legislatures these are illegal, often being defined as “An illegal lottery”

In emerging markets, such as India, Amway is permitted to operate in the manner described below. In China, since 1998, Amway has had to operate from distribution outlets, rather than via personal networks. This has not prevented the growth of the personal network sales distribution model from operating, though it now needs some kind of premises.

Any company offering distribution sales opportunities needs to be able to demonstrate that by your own hard work and marketing efforts, coupled with the quality and price of their products, you will be able to build a sufficient end-user client base to earn a decent income.

When your income is dependent on the recruitment of a further layer of distribution, this is still viable when you have a popular product, a large area and you have the skill, energy and financial wherewithal to appoint sub-distribution to cover vertical or geographical market sectors which you can’t possibly cover yourself.

The sub-distributors will rightly expect a smaller share of the potential market, but will have to commit a smaller outlay to the business and probably a smaller amount of effort, ingenuity and skill to make their sector work well from themselves. Unless they wish to add mark-up onto mark-up, inflating the price of the product to the eventual user or buyer, they will also have to settle for smaller margins.

The pyramidal type of scheme kicks in when in order to make money, you have to appoint or recruit new distributors in order for you to meet your aspirational income targets. If the premise for recruitment is that these new distributors will also make large sums of money by themselves recruiting new distributors, each of which will be recruited on the same wealth creating plan, to stock the product, sell some to end users but in turn recruit yet further new distributors, the mathematical law of exponentiation will rapidly tell you that even in a country as populous as China, you will run out of people who can become new customers.

And the trouble then is that even these new customers will still be encouraged to become new distributors, because if they don’t, the poor sucker who took on the last distributorship will be unable to build his own down-line in order to become wealthy.

In a market where such schemes are relatively new, you will of course have the opportunity to be one of the early entrants and therefore able to recruit a lot of people to carry on the process. This might make you wealthy, but there again it might not – you don’t know where you are in someone else’s pyramid (Actually it’s not a pyramid; the sides are exponential curves, so it looks a bit like an upright hearing trumpet!) You will also have to bear the responsibility that as your market is finite a lot of people who may be only a few steps of distribution away from you will discover that they have no-one left to appoint as new distributors and precious few prospects to sell to.

Take a look at the numbers. Here’s a generalised example where I’ve simplified the figures to make the point easy to follow...

Say that to make a basic income; you need to sell products to only 20 people a month.

To do that you need to contact 200 people a month (prospects). That’s 2400 prospects to find in a year.

But to make real money, you need to recruit 5 new distributors out of these 2400 prospects, who will each expect to sell to 20 people a month. That’s another 100 sales a month, but the new distributors will need to approach 1000 prospects a month or 12,000 a year.

Now these guys will not be satisfied on their sales of 20 products a month. They too will each want to recruit 5 distributors to each sell 20 units a month, so that’s total sales of 20 + 100 + 500, with you getting your full margin on 20 + less on 100 and less still on 500. But the last 500 sales required 5000 prospects to be approached or 60,000 in a year.

So far, in three layers of distribution, you have 1+5+25 = 31 people selling the product.

But 74,400 (that’s 2400 + 12,000 + 60,000) – 31 who have said no to distribution and 74,400 – 7440 who didn’t want to buy the product.

Here’s your bonus question. How many tiers do you need before you run out of potential consumers in China? And if the scheme continued to the end, how many people with broken dreams and un-saleable product will you have in your down-line?

If the moral consequences of that don’t bother you, where are you in someone else’s down-line? Are you one of a few, or are you one of many thousands or tens of thousands? No one’s going to tell you!

Do the maths yourself with the figures they might provide you with and work out that money truly can’t grow on trees. Add to that my colleague’s observations about margin and have a look at the following rant from an angry American:

https://www.stardestroyer.net/Mike/RantMode/Amway.shtml

The guy has an axe to grind (Many actually) but most of his points are well made.

Good luck in your career.


Steve Alker
Unimax Solutions